Weekly Playbook: June 30th
Independence Days & Interdependence Tests: Volatility Crush amid the Fireworks
Key Takeaways This Week
Market Surges Despite Headwinds: Major US indices reached new highs, fueled by a "volatility crush," though geopolitical tensions shifted to new trade talks between the US and Canada.
Fed's Policy Dilemma: The Federal Reserve shows growing internal divisions on interest rate cuts, even amidst easy financial conditions and the dollar's varied impact on multinational companies.
Nike's Strong Earnings Breakout: $NKE surged significantly after its earnings report, breaking key resistance levels.
Upcoming Shortened Week: The market faces a holiday-shortened week, with the crucial jobs report due on Thursday amid NYSE and Nasdaq's early close at 1 p.m. EDT.
Market Overview
The past week saw markets navigating a complex and at times unsettling geopolitical landscape, yet closing with surprising strength. Major U.S. indices, including the S&P 500, Nasdaq Composite, and Dow Jones Industrials, surged to all-time or near-all-time highs, climbing 3.44%, 4.25%, and 3.82% respectively. This resilience underscores a market increasingly adept at absorbing shocks, a sentiment reflected as the CBOE Volatility Index ($VIX) settled back into the mid-teens. This sharp drop in the $VIX, often termed a "volatility crush," definitely fueled the upward move in the markets.
Geopolitical de-escalation played a significant role, with Wall Street quickly shrugging off initial U.S. missile strikes on Iran as relief followed a swift ceasefire announcement between Israel and Iran, which also helped calm oil markets. Adding to the geopolitical complexity, President Trump rattled investors late Friday when he stated he was ending trade talks with Canada due to a digital services tax on technology companies. Given that both countries are celebrating their independence days this week, their deep interdependence remains obvious, and further developments in this trade dispute could affect the markets as seen on Friday.
As Monday marks the last day of the quarter, the closing auction action similar to Friday, though likely of a much lesser magnitude, could be observed. The Russell rebalance that took place last week will not be discussed here, as a detailed analysis has been covered separately in another writeup:
Here is just the updated NYSE Total Volume chart, though most of the action was concentrated on Nasdaq:
Beyond the geopolitical headlines, encouraging jobless claims reinforced confidence in the U.S. economy's durability, and anticipation for robust second-quarter earnings reports, set to begin in July, is palpable. The Federal Reserve's policy path, however, remains a central puzzle. Despite clearly easy financial conditions, marked by a surging stock market, accommodative credit, and a significantly weaker U.S. dollar (down 10% year-to-date), calls for interest rate cuts persist. Interestingly, divisions appear to be growing within the central bank itself. While the official stance remains cautious on immediate rate cuts due to lingering inflation risks (exacerbated by tariff uncertainties), some influential voices within the policymaking body are now openly suggesting a cut could materialize as early as July. This internal debate adds complexity to market expectations and highlights the potential for policy shifts that might not align with current projections. A significant deterioration in the labor market could prove to be the most compelling reason for the Fed to act sooner. Furthermore, the dollar's recent weakness is creating divergent impacts: it's presenting headwinds for global chip giants like Taiwan Semiconductor Manufacturing ($TSM), which is increasing its hedging efforts, while simultaneously offering a favorable tailwind for U.S. multinationals such as Apple ($AAPL), given their substantial international sales.
In this environment, many are advocating for a defensive investment posture. This often translates into a strategic pivot towards value stocks that offer strong dividends, with examples like Kinder Morgan ($KMI), Lockheed Martin ($LMT), and Altria ($MO) frequently cited. Though it's worth reminding to check the company structure if you're based outside the US, especially if you’re attracted by the dividend yields of $KMI peers. A lot of Oil & Gas Midstream companies are PTPs (Publicly Traded Partnerships), which implies a hefty 10% tax from all sales of these securities for anyone who isn't considered a U.S. person. Long live the IRS!
Moreover, the valuation gap between U.S. and international equities makes a compelling case for diversification. International stocks, particularly those captured by the iShares MSCI EAFE ETF, are trading at a noticeable discount compared to U.S. counterparts, suggesting continued opportunities abroad. Perhaps one of the most exciting developments has been the vibrant resurgence of the initial public offering market. After a period of quiet, "unicorns" are taking flight with impressive debuts. Strong initial performances were observed from fintech disruptor Chime Financial ($CHYM), drone maker AIRO Group Holdings ($AIRO), space exploration firm Voyager Technologies ($VOYG), and stablecoin leader Circle Internet Group ($CRCL), which has seen its market valuation surge to approximately $41 billion. Cloud artificial intelligence computing firm CoreWeave ($CRVW) also experienced a dramatic post-IPO run, though it already gave back 50% of the surge if measured from its IPO low. This renewed "animal spirits" among investors signals a healthy appetite for growth, but it's crucial to evaluate valuations beyond the initial hype and be mindful of potential volatility when lockup periods expire.
Broader corporate news also made waves. Tesla ($TSLA) generated buzz around its robo-taxi ambitions, while Vanguard continued its fee-cutting spree, benefiting passive investors. In M&A, there's been talk of potential consolidation among energy majors Shell ($SHEL) and BP ($BP), though market participants appeared very skeptical based on the immediate price reaction following Shell's denial of any active considerations or approach.
The market's ability to quickly rebound from geopolitical tension reflects a sentiment that some observers call the "nothing ever happens" phenomenon—a belief that major events won't truly derail the bullish trend. This outlook is part of a broader shift in global dynamics, where conventional wisdom often gets turned on its head. This period feels like a profound transition, marked by a global populist movement and evolving roles for major powers.
As we head into a holiday-shortened week (markets will be closed this Friday, July 4th, for Independence Day), key economic releases will be closely watched. Tuesday brings the ISM Manufacturing PMI for June, followed by the JOLTS report and the crucial BLS jobs report on Thursday. Forecasts suggest a modest increase in nonfarm payrolls and a slight uptick in the unemployment rate. The market will undoubtedly dissect these numbers for any clues on the Fed's next move. It's also important to note that on Thursday, July 3rd, the NYSE and Nasdaq will have a shortened session with an early close at 1 pm EDT.
The present market landscape is characterized by its counter-intuitive nature, where old rules are being rewritten. Navigating this dynamic environment requires a keen eye not just on traditional fundamentals, but on the evolving political and geopolitical forces that increasingly shape investment outcomes.
For more details, visit Barron’s.
My recent listen to The Compound and Friends, episode 197, featuring Cole Wilcox, CEO and CIO of Longboard Asset Management, offered a deep dive into the nuances of systematic investing and market behavior. What immediately struck me was the assertion that price is ultimate truth in markets, a compelling argument for its objective nature against subjective economic indicators. My analysis suggests this perspective is invaluable in today's increasingly complex financial landscape, offering a clear signal amidst pervasive market noise. Cole Wilcox’s landmark research, highlighting that the vast majority of stock market value comes from a concentrated few "winners," resonated deeply, reinforcing the strategic benefit of focusing on what truly drives long-term returns.
I found the discussion on overcoming investor biases particularly insightful, especially how past traumatic market experiences can cloud judgment in current conditions. The episode's exploration of the new generation of investors was also a key takeaway; their apparent resilience and willingness to "buy the dip," unburdened by the historical baggage of multi-year bear markets, presents a fascinating shift in market psychology. My perspective is that this generational change, coupled with the power of systematic trend following to preserve capital and provide objective entry/exit points, offers a robust framework for navigating modern market dynamics. It underscores that disciplined execution, free from emotional interference, is paramount to long-term success.
Watch it here.
Earnings Recap
Nike ($NKE)
Nike experienced a significant surge, climbing 20.49% for the week. experienced a significant surge, climbing 20.49% for the week. The stock cleared its key resistance zone at $67.5 on its conference call, with buyers not even allowing a retest during premarket trading. The breakout of another important level at 68.75 (200x IPO extension) ignited strong momentum. It is worth watching if the 200d moving average acts like a new support and the stock continues ripping higher next week, with the next major resistance standing around the $81 area.
Our quick take on the actual earnings numbers is available here:
Key Index Charts
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